SEMINAR ON CAPITAL MARKETS
AND MUTUAL FUNDS
AT
ICMA PAKISTAN, ISLAMABAD
MARCH 26, 2015
1
2
DISCLAIMER
The purpose of this session is to create awareness and education about
capital market and in no way to invite or solicit investment in capital
market. Please note that investment in capital market is subject to risk and
therefore any decision for investment shall be taken with due care.
The views expressed herein are those of the presenters and do not
necessarily reflect the views of the Securities and Exchange Commission of
Pakistan (SECP) or its employee.
PRESENTATION PLAN
Investor
Education
Program
Understanding
Capital Market
Operations
3
Mutual and
Pension Funds
in Pakistan
INVESTOR EDUCATION
PROGRAM
4
Investor Education: Financial Inclusion
5
Share of Population with Formal Financial Access (%)
14% in Pakistan (Lowest in the Region)
3
Regional Comparison
Indicator
6
Pakistan
Turkey
Bangladesh
Thailand
187,000,000
73,722,988
158,570,000
66,870,000
194,000
(.13%)
4,132,704
(5.6%)
2,804,629
(1.77%)
3,050,000
(4.6%)
Insurance
Penetration
0.7%
1.28%
0.94%
4.1%
# of CIS Unit
Holders
140,000
(.075%)
3,626,017
(4.9%)
N/A
1,550,000
(2.3%)
Participants of
Pension Funds
2,000
(.001%)
2,638,310
(3.6%)
N/A
3,400,000
(5.1%)
Savings Rate
13.8%
12.7%
19%
30.7%
Literacy Rate
56%
90.8%
48.8%
93.5%
Population
# of Investors
5
7
180 Million
Population
11 Million
Global ranking is 27
30 Million
Internet Users
2 Million
9th most visited website
15 Million
Mobile Web Users
PAKISTAN
20th largest country
on internet
16.7%
6.1%
Internet
Penetration
36%
Facebook
Penetration of
Total Population
Facebook
Penetration of
Internet Users
TARGET MARKET
Youth,School
& College
students
Non
Resident
Pakistani
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SalariedClass
Professionals
Traders and
Businessmen
INVESTOR EDUCATION PROGRAM
Objectives
Educate and create awareness amongst general public
about saving and investment including financial
planning and budgeting
Increase awareness about the financial markets (capital
market, non-banking financial and insurance sectors)
and how to go about making an investment
Educate target groups about different financial
products; risks involved; rights and responsibilities and
investor protection services
Build investor confidence in capital market, non-banking
financial and insurance sectors.
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INVESTOR EDUCATION PROGRAM LOGO
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PROGRAM NAME & TAGLINE
Jama Punji
Jamapunji, an urdu word meaning “all savings”.
The term is mostly used in connotation of lifelong
savings of an individual. The mid age group of the
target audience take this word as life-long savings
and the younger group identifies the term as
savings till date.
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FEATURES OF IEP
Ø Under the IEP, education would be imparted through:
Ø Digital Means :
Ø Web Portal
Ø Mobile Applications
Ø SMS
Ø Social Media
Ø Physical Interaction
Ø Seminars, Investor Days, Workshops
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DIGITAL MEANS FOR INVESTOR EDUCATION
1. WEB PORTAL
The Web Portal, through subscription by participants, shall be
a source of data to tap potential investors and deepen the
capital market of Pakistan.
Features of Web-Portal
Public/ Private Member Area
Education Center
Mock Trading Platform
Risk Profiler & Scam Meter
Quizzes & Games
Publications
News & Alerts
Live Chat Window
Media Center (Documentaries, Videos, Webcasts & Podcasts)
Poll and Surveys
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DIGITAL MEANS FOR INVESTOR EDUCATION
2. SMS SHORT CODE/MOBILE PLATFORM
PTA approved mobile short code service in multi
language
connect with existing/potential investors &
insurance consumers
promote investor & insurance education awareness
& protection campaign.
provide a platform to report complaints.
Investor alerts/notifications/news
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DIGITAL MEANS FOR INVESTOR EDUCATION
3. Mobile Applications
Mobile applications shall be developed and
made available to registered users.
Features include:
Scam meter
Branch locator
Verification of market participants
Games
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DIGITAL MEANS FOR INVESTOR EDUCATION
4. Social Media
Investor Education Web Page Setup &
Design
Facebook , Twitter & LinkedIn Page
Management
Promotional activities
Placement of digital advertisements
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PHYSICAL MEANS FOR INVESTOR EDUCATION
Targeting General public, Corporate Institutions, Clubs,
Associations, etc. and Students of universities and
schools
ü Seminars
ü Conferences
ü Lecture Series
ü Quizzes/Competitions
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CAPITAL MARKET
OPERATIONS
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Area of Discussion
• Understanding
Capital Market
1
• Working of
Stock Market
2
• Investor
Protection
3.
The Capital Market An Introduction
A capital market is a market for securities (debt or equity),
where
business
enterprises
(companies)
and
governments can raise long-term funds from general
public (Investors). It is defined as a market in which
money is provided for periods longer than a year.
Primary Market
Market of New Issues
Public Offerings
Secondary Market
Market of Existing Securities
Trading of Listed Securities
20
Importance of Capital Market
Channelize Savings
Fund raising Option
Investment Avenue
Secondary market benefits
Bank Based vs Market Based
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22
Instruments of Capital Market
Equities
Common Shares/Ordinary Shares
Preference Shares
Debt Securities
Corporate bonds//Sukuk
Govt bonds/Sukuk
Derivatives
Futures Contracts
Stock & Index Futures
Stock and Index Options
Exchange Traded Funds
Participants of Capital Market
Issuers
Service
Providers
Investors
Users of Funds
SROs
Providers of
funds
Companies
Intermediaries
Individual
Substantial
shareholders
Support
services
providers
Institutional
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Opportunities for Issuers
• Initial public offerings (IPOs)- Companies may require
funds for expansion / new projects
• Offer for sale of Shares – Sponsors of successful
companies may want encash their investments
• Minimum Capital of Rs.200 million
• Approval of Prospectus from SECP
• Approval of Listing from Stock Exchange
• Listing of Debt Securities for General Public
• Listing of Debt Securities for Sophisticated Investors
• Listing of small and medium enterprises on SME Board
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Opportunities for Service Providers
Self Regulatory Organizations
• Stock and Commodity Exchanges
• Clearing and Depository Companies
Intermediaries
• Stock and Commodity Brokers
• Agents of Stock Brokers
• Clearing and Custodian Members
Support services providers
• Credit Rating Agencies and Auditors
• Consultants, Advisors, Lead Managers & Book Runner
• Balloters, Transfer Agents & Underwriters
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Opportunities for Investors
Direct
Investment
Indirect
Investment
Stock Market
Mutual Funds
• Dividends
• Capital Gains
• Fixed Returns
• Speculation
• Equity Funds
• Debt Funds
• Money Market
Funds etc.
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Self Regulatory Organizations
Karachi Stock Exchange Ltd established in 1947
Lahore Stock Exchange Ltd established in 1970
Islamabad Stock Exchange Ltd established in 1989
Central Depository Company of Pakistan Limited
established in 1997
National Clearing Company of Pakistan Limited
established in 2001
Pakistan Mercantile Exchange Limited established
in 2002 and operations started in 2007
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Karachi Stock
Exchange Limited
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Organization Structure
6 appointed by SECP
4 elected by
Shareholders
01 being Chief
Executive
Regulatory
Affairs
Chief Regulatory
Officer
Commercial
Affairs
Managing
Director
Board of
Director
Company
Secretary
Internal Audit
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Market Segments
Equity
Derivatives
Bonds
SME
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KSE Trading Platforms
Karachi
Automated
System
(KATS)
Bonds
Automated
System
(BATS)
Deliverable
Futures
Market
(DFM)
Over-thecounter
(OTC)
Market
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Transaction Flow at KSE
Risk
Management
System
Trading
Engine
Reporting
Engine
Transmission
of Data to
NCCPL
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NCCPL Organization
9 elected by
Shareholders
1 nominated by SECP
1 being CEO
Board of
Directors
Chief
Executive
Officer
Audit
Committee
Chief Internal
Auditor
Chief
Information
Officer
CFO/Company
Secretary
Chief
Operating
Officer
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Clearing Members
NCCPL Membership Types
Broker Clearing
Member (BCM)
KSE Brokers
LSE Brokers
ISE Brokers
Non-Broker
Clearing
Member (NBCM)
Banks
Custodian
Clearing
Member (CCM)
City Bank
Financial institutions
Mutual funds
Standard Chartered
Douche Bank
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Types of Transactions at NCCPL
Exchange
Trades
Non-Exchange
Trades
Leverage
Market
Regular or
Ready
Institutional
Delivery System
(IDS)
Margin Trading
System (MTS)
Futures Market
IDS for CCMs
Margin
Financing
System (MFS)
Negotiated Deal
Market (NDM)
Broker to Broker
Settlement
(B2B)
Securities
Lending &
Borrowing (SLB)
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NCCPL Work Flow
Trading
data from
Stock
Exchanges
Preparation
of Balance
Order
Auto Pay
and Collect
System
Automated
Securities
Settlement
38
CDC Membership Types
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Central Depository System (CDS)
Account-holders
Participants
Issuers/Registrars
Pledgees
Main Account
Main Account
Debt Securities
Banks/DFIs
House Account
House Account
Equity Securities
Stock Exchanges
Sub-accounts
Private Co Sec
Clearing
Company
40
Kinds of CDS Transactions
Automated Settlement Transactions
Free-Delivery Securities Transactions
Corporate Actions related Transactions
Other Transactions e.g. conversion, merger
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CDC Services
Custodial
Services
RTA
Services
Trustee
Services
IT
Services
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PMEX The Only Commodity Exchange
Governance Structure
Regulation of Members/Brokers
Trading, Clearing and Settlement
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PMEX Products
Cash Settled
Futures
Contracts
Deliverable
Futures
Contracts
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Access Flow
Stock Market
Broker
Investor
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MARKET OPERATING SYSTEMS
Risk
Manageme
nt System
Trading
Systems
Depository
System
Clearing
and
Settlement
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Trade Flow
Trading
Clearing &
Settlement
Money
Obligation
Securities
Obligation
FUNCTIONS OF A BROKER
Broker
Stock
Exchange
Central
Depository
Clearing
Company
TREC holder
Participant
Clearing
Member
Automated
Trading
System
Central
Depository
System (CDS)
Clearing and
Settlement
System
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Stock Market Trade
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Investor
Registration
Pre-trade
Margin
Order Making
Order
Execution
Trade
Confirmation
Data transfer
to NCCPL
Netting of
Trades
Balance
Orders
Money
Obligation
Instruction to
Clearing Bank
Debit Buying
Broker
Credit Selling
Broker
Securities
Obligation
Instructions
to CDC
Pick from
Seller A/c
Park in Buyer
A/c
Stock Market Trade -Recap
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Participants
Investor
Broker
Stock
Exchange
Clearing
Company
Clearing Bank
Depository
Company
Money
Obligations
Securities
Obligation
Electronic
Banking
System
Central
Depository
System
Transfer of
funds
Transfer of
Securities
Functions
Investment
Broking
Execution of
Trades
Obligation
Settlement
System
Private
System
Brokerage
Accounting
System
Automated
Trading
System
Clearing &
Settlement
System
Action
Making Order
Order
Execution
Order
Matching
Order netting
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Do’s and Don’ts for investors Do
}
Always deal with the market intermediaries registered with
the stock exchanges and SECP.
}
Before placing an order with the market intermediaries,
please check about the credentials of the brokers from the
relevant stock exchange or from SECP.
}
Carefully read and understand the contents of Account
Opening Form.
}
Collect copies of all documents executed with the Brokers
and ensure that documents or forms are fully filled in.
}
Always settle the dues through the normal banking
channels with the market intermediaries.
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Do’s and Don’ts for investors - Do
}
Adopt trading / investment strategies commensurate with
your risk-bearing capacity as all investments carry some risk.
}
Be cautious about stocks which show a sudden spurt in price
or trading activity, especially low price stocks.
}
There are no guaranteed returns on investment in the stock
market.
}
Give clear and unambiguous instructions to your broker.
}
Always insist on contract notes from your broker.
}
Always keep copies of all investment documentation (e.g.
application forms, Trade confirmations, payment receipts).
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Do’s and Don’ts for investors Do
}
Always keep copies of documents you are sending to
companies, Brokers or their Agents and Registrar etc.
}
Send important documents by a reliable mode (preferably
through registered post) to ensure delivery.
}
Follow up diligently and promptly e.g. If you do not receive
the required documentation within a reasonable time,
contact the concerned person immediately.
}
In case of dispute, file arbitration application with the
concerned stock exchange.
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Do’s and Don’ts for investors Don
}
Don’t execute any documents with any intermediary
without fully understanding its terms and conditions.
}
Don’t deal based on rumors or ’tips/dheyan’.
}
Don’t fall prey to promises of guaranteed returns.
}
Don’t get misled by companies showing approvals /
registrations from Government agencies as the approvals
could be for certain other purposes and not for the
securities.
}
Don’t get carried away with advertisements about the
financial performance of companies in print and electronic
media.
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Do’s and Don’ts for investors Don
}
Don’t blindly imitate investment decisions of others who
may have profited from their investment decisions.
}
Don’t forgo obtaining all documents of transactions, in good
faith even from people whom you know.
}
Don’t forget to take note of the risks involved in an
investment.
}
Don’t get misled by guarantees of repayment of your
investments through post-dated cheques.
}
Don’t hesitate to approach concerned persons and then the
appropriate authorities.
}
Don’t get swayed by promises of high returns.
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Important consideration for investors
}
Decision to keep custody of shares should be taken wiselyCDC Investor account provides more protection as it is
operated solely upon the instructions of investors
}
Ensure that you are receiving SM alerts or email alerts for
each movement of security in your sub-account with the
broker. subscription to these services is now mandatory.
Check whether broker has entered correct contact details
}
Subscribe to NCCPL UIS services to regularly check trading in
your name by broker
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Broker Registration Certificate
60
Agent Registration Certificate
Common misconducts by the Brokers
}
Unauthorized buying and selling of securities
}
Unauthorized pledge of securities
}
Overcharging of Commission
}
Non providing of Account opening forms
}
Non providing of trade confirmations
}
Non providing of Account Balances
}
Difference in Ledgers issued by the Brokers compared to
the actual holdings in CDC account.
}
Squaring off the positions without giving margin calls
}
Charging liquidation charges to the clients
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Code of conduct for brokers Duty
towards Investor
}
Execution of orders.- A broker, in his dealings with the clients,
shall faithfully execute the orders for buying and selling of
securities at the best available market price and not refuse to
deal with a small investor merely on the ground of the volume
of business involve.
}
A broker shall promptly inform his client about the execution or
non-execution of an order,
}
Issue of contract note.- (1) A broker shall not refuse to
promptly issue to his clients purchase or sale notes for all the
transactions entered into by him with his clients.
}
Breach of trust.- A broker shall not disclose or discuss with any
other person or make improper use of the details of personal
investments and other in formation of a confidential nature of a
client which he comes to know in his business relationship.
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Code of conduct for brokers Duty
towards Investor
}
Business and commission.- (1) A broker shall not encourage sales or
purchase of securities with the sole object of generating brokerage or
commission.
}
A broker shall not furnish false or misleading quotations or give any false
or misleading advice or information to a client with a view of inducing
him to do business in particular securities and enabling himself to earn
brokerage or commission
}
Business of defaulting clients.- A broker shall not deal or transact
business knowingly, directly .or indirectly or execute an order for a client
who has failed to carry out his commitments
}
Fairness to clients.- A broker, when dealing with a client, shall disclose
whether he is acting as a principal or as an agent.
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Code of conduct for brokers Broker
Registration Rules, 2001
}
Investment advice.- A broker shall not make a
recommendation to any client who might be
expected to rely thereon to acquire, dispose of, retain
any securities unless he has reasonable grounds for
believing that the recommendation is suitable for
such a client upon the basis of the facts.
}
Competence of broker.- A broker should have
adequately trained staff and arrangements to render
fair, prompt and competent services to his clients
MEASURES FOR PROVIDING INFOMRATION TO INVESTORS
IVR
CDC
SMS
[e access]
Email alerts
Web Access
NCCPL
UIS
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Mutual / Pension Funds in
Pakistan
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Mutual Fund
Mutual fund is a pool of money invested according to a
common investment objective by an asset
management company (AMC) on behalf of the fund
investors.
Pension Fund
The pension fund is a common asset pool meant to
generate stable growth over the long term, and
provide pensions for employees when they reach the
superannuation.
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Mutual Fund Cycle
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Management Fee
Investment
Return Passed to
Investors
Redemption
Investment
Returns
Disinvestment
Trustee Fee
Regulatory Framework
• Investor
• Asset
Management
Company
Companies
Ordinance
1984
Income Tax /
Sales Tax/
other
Circulars
• SECP
NBFC Rules/
Regulations
Listing
Regulations/
Code Of
Corporate
Governance
• Trustee
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71
Types & Kinds of Mutual Funds
Open Ended / Closed
Ended
Money
Market
Funds
Fixed
Income
Funds
Equity
Funds
Balanced
Funds
Index
Funds
Sharia Complaint /
Conventional
Commodity
Funds
Fund
of
Funds
Principal
Protected
Funds
72
Types & Kinds of Pension Fund
Conventional /Sharia
Complaint
Pension Schemes
Equity
Sub
Fund
Debt Sub
Fund
Money
Market
Fund
Commodity
Sub Fund
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Trend of Total Assets & No. of Mutual Funds (Rs. In billion)
Rs in billion
Period
Total Assets
Growth since
last June
Total No. of Mutual
Funds
Jun-10
Jun-11 Jun-12 Jun-13 Jun-14 Nov-14
Aggregate
Growth
(Jun-10 to
Nov-14)
Compounded
Annual
Growth Rate
238
291
410
402
452
463
-
22%
41%
-2%
12%
2%
94.54%
16.24%
127
136
147
147
160
161
26.77%
-----
As of January 20, 2015 total assets of mutual funds amounted to Rs. 500
billion
Presentation on Mutual / Pension Funds in Pakistan
Top 10 AMCs Asset wise
Sr. No,
AMCs
74
Total
No of
M.Funds AUMs
Funds
(Rs. in Mn.)
Total
No of
Pension
Pension
Funds AUMs
Funds
(Rs. in Mn.)
-
1
National Investment Trust Ltd.
5
95,371
2
3
Al Meezan Investment Management Ltd.
UBL Fund Managers
10
19
59,382
51,263
1
2
3,413
2,149
4
5
6
7
8
9
10
MCB -Arif Habib Saving & investments Ltd.
NBP Fullerton AMC
HBL AMC
ABL- AMC
PICIC AMC
Alfalah GHP
Atlas AMC
12
15
6
8
8
12
6
42,059
46,314
19,588
29,642
26,995
16,016
14,868
2
2
2
2
0
0
2
1,033
671
598
204
0.00
0.00
1,192
101
60
161
401,501
61,467
462,969
13
0
13
9,261
652
9,913
Top 10 AMCs holds 85.6% of the AUM
Total for Rest of the AMCs
Total
Asset Allocation of Mutual Funds as of November 30, 2014
Equity
Rs171.60 billion
37.07%
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Government
Securities
Rs182.86 billion
39.50%
Debt Securities
Rs14.26
3.08%
Others
Rs30.02 billion
6.48%
Bank Balances /
Placements /
Deposits with FIs
Rs64.23 billion
13.87%
76
Trend of Total Assets of Pension Funds
Rs in million
Description
Jun-10 Jun-11
Jun-12 Jun-13 Jun-14 Nov-14
Total Assets
1,301
1,575
2,776
4,854
8,310
9,913
Growth since
last June
-
21%
76%
75%
71%
19%
Presentation on Mutual / Pension Funds in Pakistan
Aggregate
Growth
(Jun10Nov14)
Annualized
Compounded
Growth Rate
662%
58.29%
77
Advantages of Investment in Mutual Fund
Liquidity
Tax Benefits
Professional Management
Mutual Funds provide the opportunity for long term growth without the
requirement of any long term commitment, as mutual funds provide the option to
redeem your investment on a daily basis.
Mutual funds in Pakistan are exempted from tax as Mutual Funds have to distribute
90% of their income to Unit Holders. Additionally, bonus units may be redeemed
without any tax liability.
Dedicated research team, specialized portfolio management, and risk management
oversight and controls.
Diversification regardless of
small Investment Amount
Mutual Funds provide the opportunity to establish a well diversified portfolio
without the large investment typically required to achieve this diversification.
Active Management
Investments with mutual funds attempt to weather all storms as AMC’s, who
specialize in managing your investments, take advantage of ups & downs in the
market.
Accessibility
Security
Regulated by SECP
A Mutual Fund allows you to invest without requiring a large investment - in fact
you can invest for as little as PKR 100. This means that small amounts may be
invested over a period of time.
Net Assets of a Mutual Fund are completely under the custody the Trustee which
ensures that the fund is operating within the investment policy as detailed in the
Trust Deed.
Mutual Funds are fully regulated by SECP, ensuring investor’s rights to be afforded
protection.
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Major Factors to be considered before making
investment in mutual fund
}
}
}
}
}
Investment Horizon of the investor
Risk Appetite of the investor
Past Performance of Funds
Reputation of Asset Management Company
Fee and Expenses
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Information to Investors
Investors can get information pertaining to their value
of investment in Mutual Funds from the following
sources.
}
}
}
}
}
Announcement of Daily NAVs
Account Statements / Transaction Statements
Monthly Fund Manager Reports (FMR)
Quarterly Accounts of the Mutual Funds
Annual Audited Accounts of the Mutual Funds
Sample of Monthly FMR
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THANK YOU